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November 3, 2010

Navy wants to make two design, two shipbuilder LCS buy

The Navy is retreating from its "winner take all" strategy of picking just one of the two competing Littoral Combat Ships designs. Now Secretary of the Navy Ray Mabus is looking to order ten ships from Austal USA and ten from the Lockheed Martin, Marinette Marine team.

U.S. Senator Jeff Sessions (R-AL), a senior member of the Senate Armed Services Committee, made the following comments today regarding the Navy's proposal to purchase additional Littoral Combat Ships:

"In September of 2009, Congress authorized the Navy to downselect between two LCS designs and award one industry team a contract to build up to 10 ships. Secretary Mabus called me this morning to discuss an option that could allow the Navy to purchase additional Littoral Combat Ships. Secretary Mabus said the Navy would like to do a 10-ship buy with each ship builder, Austal USA in Mobile and Marinette Marine in Wisconsin, adding twenty LCS ships to the Navy's fleet. Importantly, because of strong competition and price reductions, this plan can be accomplished without new funds.

"This is great news for Mobile and for the taxpayers. I am proud that the LCS program remains so competitive. Construction of 10 ships at Austal would more than double their sizeable current workforce from 1,800 to 4,000 employees over the next two to three years. The LCS decision would allow the Navy to obtain more ships in a shorter period of time, putting it on track to more quickly reach its goal of a 313-ship Navy. I applaud Secretary Mabus and the Navy for working toward this innovative solution. And, in a time of economic hardship, it is encouraging to see that Alabama's industrial base is so strong.

"I believe that this is a good strategy, and I will strongly support it. The ultimate goal of the Navy for this priority program is 55 LCS vessels. The LCS vessels are a critical part of the Navy's goal for a 313-ship Navy."

U.S. Senator Richard Shelby (R-Ala.) said: "The Littoral Combat Ship award is extremely important to our Navy and will provide a new capability to face the asymmetric threats of the future.

"The LCS program is greatly needed for the Navy to operate in shallow waters to combat the threats of surface craft, submarines, and mines. Austal's LCS trimaran is fast and maneuverable and the right ship to meet our military's missions. This ship offers the greatest fuel efficiency and best combat capability for our warfighters.

"I remain concerned, however, about this new Navy acquisition strategy, how Secretary Mabus reached this decision, and the additional costs this will add to the program. I look forward to learning more about this decision in the coming days."

Though Secretary Mabus's proposal seems to have caught most observers by surprise, a recent Congressional Research Service report by veteran analyst Ronald O'Rourke, published October 14, had this to say:

One alternative [to the down select would be a strategy that would keep both LCS designs in production, at least for the time being. Such a strategy might involve the following:

the use of block-buy contracts with augmented EOQ authority, as under the Navy's proposed acquisition strategy, to continue producing both LCS designs, so as to provide stability to shipyards and suppliers involved in producing both LCS designs;

the use of Profit Related to Offer (PRO) bidding between the builders of the two LCS designs, so as to generate competitive pressure between them and thereby restrain LCS production costs;18 and

designing a new LCS combat system that would have a high degree of commonality with one or more existing Navy surface ship combat systems and be provided as government-furnished equipment (GFE) for use on both LCS designs--an idea that was considered by the Navy at an earlier point in the program.

Supporters of an alternative like the one outlined above could argue that it would

provide stability to LCS shipyards and suppliers;

use competition to restrain LCS production costs;

permit the Navy to receive a full return on the investment the Navy made in creating both LCS designs;

reduce the life-cycle operation and support costs associated with building two LCS designs by equipping all LCSs with a common combat system;

allow the Navy to design an LCS combat system that is, from the outset, highly common with one or more of the Navy's existing surface ship combat systems;

achieve a maximum LCS procurement rate of four ships per year starting in FY2011 (two years earlier than under the Navy's proposal), thus permitting more LCSs to enter service with the Navy sooner;

build both LCS designs in substantial numbers, thereby avoiding a situation of having a small number of orphan LCS ships that could have potentially high operation and support costs;

preserve a potential to neck down to a single LCS design at some point in the future, while permitting the Navy in the meantime to more fully evaluate the operational characteristics of the two designs in real-world deployments; and

increase the potential for achieving foreign sales of LCSs (which can reduce production costs for LCSs made for the U.S. Navy) by offering potential foreign buyers two LCS designs with active production lines.

Maybe the Secretary of the Navy read Ronald O'Rourke's report. Maybe Mr. O'Rourke is a seer.

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